Horlicks drops its prices in the mass market; to launch more specialised products

Horlicks is dropping its price by almost a fifth for its low unit packs to push up sales in small towns to counter intense pressure from a slew of new entrantsRatna Bhushan | ET Bureau | March 21, 2017, 08:51 IST

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GSK Consumer’s star kid nutrition brand Horlicks is dropping its price by almost a fifth for its low unit packs to push up sales in small towns to counter intense pressure from a slew of new entrants from giants Nestle, Danone and Abbot.

On the other hand, the India arm of the British healthcare giant is stepping up launches of highmargin specialised variants. GSK Consumer’s third quarter earnings show slowing volumes for the last eight quarters while revenues fell 11% year-on-year and net profit dropped 8%. Volumes, down 17% in Q3 year-on-year, have remained either negative or flat for the past eight quarters.

“The category is having a volume growth problem. The rural economy has not been good over the last two years. So, the slowdown of the small town phenomenon over the last two years hurt this category the most,” GSKCH managing director Manoj Kumar told ET in an interview. In the past two months, the Rs 5,500-crore health foods category has seen a spurt of activity from rivals threatening Horlicks’ share. Last month, Nestle relaunched its fortified milk drink Milo with under 10% sucrose per pack. French firm Danone SA’s Protinex Grow is the other brand GSK needs to watch out for.

In February, Danone announced its intention to double India revenue by 2020 and that it will introduce 10 products in health and nutrition segment this year. Abbot’s Pediasure and Ensure are gaining traction, though on a low base. US firm Mead Johnson has also began selling Enfagrow, a nutritional milk powder for kids.

“There’s lot more competition in kids’ nutrition. We see all this activity as negative for GSK Consumer. Mead Johnson’s Enfagrow, for example, claims it provides highest levels of nutrition compared to leading children nutrition brands in India,” Edelweiss Securities wrote in a note on March 14.

While India is the second largest country after the US in terms of topline for GSK Consumer, the Gurgaon-based firm continues to depend heavily on Horlicks, with the brand and its variants contributing 75% to its total sales. The foods business comprising instant noodles Foodles, oats and biscuits, which contributes close to 6% to GSK Consumer’s topline business, remains small.

“Since a significant portion of our category is in rural and small towns, we are very much linked to the revival of the economy there. We are playing both the mass and high-science segment with clinical claims,” Kumar said. GSK will be attacking the premium segment willing to pay for functional and life stage products on one end and lower prices in the mass segment which is looking for value on the other end, he said.

Data by research firm Nielsen showed Horlicks’s share has more or less remained stagnant at 46-47% for the 12-month period between Feb 2016 and Feb 2017, two officials from the industry said.

The government’s focus on the rural economy and a good monsoon last year did help revive the category, but the demonetisation move again stalled consumption, said Kumar.

“However, the revival of the rural economy and reversing pricing of sachets by 20% should move sales, as consumers tend to enter the category and then upgrade,” Kumar said. Sachet prices of Horlicks have been dropped from Rs 6 to Rs 5.

On its nascent foods business, Kumar said while earlier the category was a drag on topline, the firm is getting its act together in pricing, distribution, promotion and communication.